Abstract: The Loess Plateau is divided into two basic types of positive terrain and negative terrain by the zigzag loess shoulder-lines on the surface. The evolution of small loess watershed is a miniature of the landform development in the Loess Plateau. Cellular automata modeling method was adopted to simulate the dynamic terrain evolution of an indoor small loess watershed model under artificial rainfall condition in this study. DEMs with 10 mm grid size were obtained by monitoring the landform development of the small loess watershed using close-range digital photogrammetric method. The iterative process realistically simulated the positive and negative terrain evolution that the loess negative terrain areas continuously eroded the positive terrain in the small loess watershed. The simulation depicted this erosion vividly, which could also reflect the appearance of a very important phenomenon-loess sinkhole. The development of loess sinkhole near the middle gully head revealed the function of loess sinkhole in the formation of loess channel system. The simulation result was comparatively good in terms of consistent accuracy and spatial distribution. It is demonstrated that the simulation of terrain evolution based on cellular automata can dig out the evolution mechanism of loess terrain within a small loess watershed.